Mena Mani Industries Limited v. The Income Tax Officer, Ward 2(1)(4

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21135 of 2019 ========================================================= MENA MANI INDUSTRIES LIMITED VersusTHE INCOME TAX OFFICER, WARD 2(1)(4) ============================================= ============= Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1MRS MAUNA M BHATT(174) for the Respondent(s) No. 1============================================= ============= CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MR. JUSTICE ILESH J. VORA Date : 26/03/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this writ application under Article 226 of the Constitution ofIndia, the writ applicant seeks to challenge the Notice dated 30.03.2019issued by respondent No.1 under Section 148 of the Income Tax Act,1961 (for short “the Act, 1961”) seeking to reopen the writ applicant’sincome tax assessment for the A.Y. 2012-13.India, the writ applicant seeks to challenge the Notice dated 30.03.2019issued by respondent No.1 under Section 148 of the Income Tax Act,1961 (for short “the Act, 1961”) seeking to reopen the writ applicant’sincome tax assessment for the A.Y. 2012-13. 2. Briefly stated the facts are that, the writ applicant – Mena ManiIndustries Ltd. being a private limited company, was earlier known as‘M/s. Anar Industries Ltd.’ and prior to that, it was known as ‘EnrichIndustries Ltd.’, filed its return of income on 25.09.2012 declaring itstotal income at Rs.Nil and the same was processed under Section 143(1) of the Act. For the year under consideration i.e. 2012-13, the writapplicant received Rs.1,23,89,040/- from M/s. Chetan Enterprise, whichwas non filer of return of income for the year under consideration andalso not traceable on the registered address. The assessee had receivedinterest income of Rs.11,17,084/- for the year under consideration.However, the company had shown interest income only Rs.5,58,542/- inthe return of income. Under the circumstances, the assessment for theIndustries Ltd. being a private limited company, was earlier known as‘M/s. Anar Industries Ltd.’ and prior to that, it was known as ‘EnrichIndustries Ltd.’, filed its return of income on 25.09.2012 declaring itstotal income at Rs.Nil and the same was processed under Section 143(1) of the Act. For the year under consideration i.e. 2012-13, the writapplicant received Rs.1,23,89,040/- from M/s. Chetan Enterprise, whichwas non filer of return of income for the year under consideration andalso not traceable on the registered address. The assessee had receivedinterest income of Rs.11,17,084/- for the year under consideration.However, the company had shown interest income only Rs.5,58,542/- inthe return of income. Under the circumstances, the assessment for the year 2012-13 of the assessee was sought to be reopened by the revenueby issuing impugned notice dated 30.03.2019 under Section 148 of theAct. 3. The writ applicant filed its return of income in response to the noticeissued by the revenue and requested to supply the copy of the reasonsrecorded for reopening. The same was supplied vide communicationdated 12.09.2019. The writ applicant vide letter dated 19.09.2019 raisedobjections, which came to be disposed of by the revenue vide orderdated 04.10.2019. The assessing officer before issuing the aforesaidnotice, has recorded the reasons for reopening which reads as under:issued by the revenue and requested to supply the copy of the reasonsrecorded for reopening. The same was supplied vide communicationdated 12.09.2019. The writ applicant vide letter dated 19.09.2019 raisedobjections, which came to be disposed of by the revenue vide orderdated 04.10.2019. The assessing officer before issuing the aforesaidnotice, has recorded the reasons for reopening which reads as under: Reasons recorded :- Reasons recorded :- “1.The assessee company had filed its return of income for A.Y.2012-13 on 25.09.2012 declaring income of Rs Nil. The return ofincome was processed U/s 143(1) of the Income tax Act on 14.03.2013at the total income of Rs Nil.2.In this case, information was also received from DDIT(Inv),Unit-5(4), Mumbai on 28.03.2019 that in the case of M/s ChetanEnterprises on perusal of the bank account number 912020001029167of Axix bank Limited, a sudden high value transfer credits and debitswere observed between 08.02.2012 to 13.02.2012 and thereafter notransactions were observed in the said account. 2.1 In this connection, during the enquiry proceedings summons u/s.131 of the Act were issued to M/s. Chetan Enterprises but it is foundnot traceable. Further, on perusal of the bank account it is found thatthe amount of Rs. 1,48,81,070/- was transferred from M/s. BhaveshTrading Co to M/s Chetan Enterprises which also found non filer ofreturn of income for A.Y. 2012-13 and also not traceable on givenaddress. Further, on perusal of the account of M/s Chetan Enterprisesan amount of Rs 1,23,89,040/- transferred to the assessee company M/sAnar Industris Limited ( now known as M/s. Mena Mani IndustriesLtd). 3. On analysis from the retum of income and ITS data of the assesseecompany, it is found that the assessee company has received interestincome of Rs 11,17,084/- as per 26 As for F.Y. 2011-12 relevant to A.Y.2012-13 where as it has disclosed only an interest income of Rs.5,58,542/-. Further, during the course of investigation proceedings bythe DDIT (Inv) a summons was also issued to the assessee companywith a request to explain the said transaction entered into with M/sChetan Enterprises. In response to the same it has submitted by theassessee compan that no transaction was made with M/s Chetanenterprises but not filed any supporting evidence to justify the samewith copy of bank statement etc. Therefore, in view of the above all thetransaction made with the above concern are not genuine. In view of the above, | have reason to believe that there is escapement of incomeof Rs. 1,29 47,582/- for A.Y. 2012-13, Therefore, it is a fit case forissuing notice U/s 148 of the Income tax Act. 4. In this case a return of income was filed for the year underconsideration but no scrutiny assessment U/s 143(3) of the I.T. Act wasmade. Accordingly, in this case only requirement to initiateproceedings U/s 147 is reason to believe which has been recordedabove. 5. It is pertinent to mention here that in this case the assessee has filedits return of income for the year under consideration but no assessmentas stipulated U/s 2(40) of the Act was made and the return of incomewas only processed U/s 143(1) of the Act . In view of the above,provision of clause (b) of explanation 2 section 147 are applicable tofacts of the case and the assessment year under consideration isdeemed to be a case where income chargeable to tax has escapedassessment. : 6. Further, in this case more than} four year have lapsed from end ofthe assessment year under consideration. Hence necessary sanction toissue notice U/s 148 is requested for approval from the Pr:Commissioner of Income tax as per the provisions of section 151 of theAct.” 4. The writ applicant raised the objections against the issuance ofimpugned notice and the intention of proceedings mainly on thefollowing grounds:impugned notice and the intention of proceedings mainly on thefollowing grounds: (i)No escapement of income chargeable to tax; (ii)No difference between ‘interest income’ reflected in Form26AS and ‘interest income’ disclosed by the writ applicant;26AS and ‘interest income’ disclosed by the writ applicant; (iii)Reasons lacked validity; (iv)Sanction in terms of Section 151 of the Act has not beenobtained in correct perspectiveobtained in correct perspective (v)Reopening is based on borrowed satisfaction. 4. The writ applicant raised the objections against the issuance ofimpugned notice and the intention of proceedings mainly on thefollowing grounds:impugned notice and the intention of proceedings mainly on thefollowing grounds: (i)No escapement of income chargeable to tax; (ii)No difference between ‘interest income’ reflected in Form26AS and ‘interest income’ disclosed by the writ applicant;26AS and ‘interest income’ disclosed by the writ applicant; (iii)Reasons lacked validity; (iv)Sanction in terms of Section 151 of the Act has not beenobtained in correct perspectiveobtained in correct perspective (v)Reopening is based on borrowed satisfaction. 5. Being aggrieved by the impugned notice as well as the order ofdisposing of the objections, the writ applicant has come up before thisCourt with the present writ application. disposing of the objections, the writ applicant has come up before thisCourt with the present writ application. 6. We have heard Mr. Tushar Hemani, the learned Senior Counsel assistedby Ms. Vaibhavi Parikh, the learned counsel appearing for the writby Ms. Vaibhavi Parikh, the learned counsel appearing for the writ applicant and Mrs. Mauna Bhat, the learned Sr. Standing Counselassisted by Mr. Karan Sanghani, the learned counsel appearing for theRevenue. assisted by Mr. Karan Sanghani, the learned counsel appearing for theRevenue. 7. Mr. Tushar Hemani, the learned Sr. Counsel appearing for the writapplicant submitted that, the impugned notice is absolutely illegal andbad in law and against the provisions of the statute, more particularlySection 147/148 of the Act. It was further submitted that, during theA.Y. 2011-12, the writ applicant made sales amounting toRs.1,20,46,250/- to M/s. Harsh Enterprise and the amount was debitedto the party’s account and the same was reflected in annual accounts ofthe assessee. In this context, it was submitted that, for the year underconsideration, the writ applicant received Rs.1,23,89,040/- from M/s.Chetan Enterprises on behalf of M/s. Harsh Enterprise from whom theassessee company was to recover Rs.1,26,48,563/- on account of salesmade in the earlier A.Y 2011-12 and the same had not credited to theaccount of M/s. Harsh Enterprise. Drawing attention to the ledger copiesof M/s. Harsh Enterprise and annual account of the assessee, it wassubmitted that the writ applicant had not entered into any independenttransaction with M/s. Chetan Enterprises and money received from M/s.Chetan Enterprise was merely on behalf of M/s. Harsh Enterprises.Thus, for the year under consideration, the assessee company hadreceived the amount of outstanding sales consideration, which wasalready offered for tax in preceding year and therefore, no taxing eventhas taken place during A.Y. 2012-13 and therefore, question ofescapement of any income does not arise at all. Under suchcircumstances, it was humbly submitted that, there is no escapement ofincome chargeable to tax as contained in the reasons recorded whileissuing the impugned notice and the reasons lacked validity and therevenue is not justified to reopen the assessment for the year underconsideration. 8. It was also submitted that, reason to believe is bad in law as theassessing officer recorded his satisfaction only on the basis of theinformation received from the investigating wing without carrying outhis independent enquiries and hence, he assumed jurisdiction only onborrowed satisfaction, which is impermissible in law. assessing officer recorded his satisfaction only on the basis of theinformation received from the investigating wing without carrying outhis independent enquiries and hence, he assumed jurisdiction only onborrowed satisfaction, which is impermissible in law. 8. It was also submitted that, reason to believe is bad in law as theassessing officer recorded his satisfaction only on the basis of theinformation received from the investigating wing without carrying outhis independent enquiries and hence, he assumed jurisdiction only onborrowed satisfaction, which is impermissible in law. assessing officer recorded his satisfaction only on the basis of theinformation received from the investigating wing without carrying outhis independent enquiries and hence, he assumed jurisdiction only onborrowed satisfaction, which is impermissible in law. 9. As regards the interest income of Rs.11,17,084/-, it was submitted thatthe amount as per Form 26AS is factually incorrect and interest incomeof Rs.5,58,542/- as reflected in Form 26AS had not disclosed.Therefore, there is no difference between interest income reflected inForm 26AS and interest income disclosed by the assessee company. the amount as per Form 26AS is factually incorrect and interest incomeof Rs.5,58,542/- as reflected in Form 26AS had not disclosed.Therefore, there is no difference between interest income reflected inForm 26AS and interest income disclosed by the assessee company. 10.In view of the aforesaid contentions, learned Sr. Counsel for the writapplicant submitted that reopening of the assessment is thereforewithout jurisdiction and hence, the impugned notice deserves to bequashed and set aside. applicant submitted that reopening of the assessment is thereforewithout jurisdiction and hence, the impugned notice deserves to bequashed and set aside. 11.On the other hand, Mrs. Mauna Bhatt, the learned Sr. Standing Counselappearing for the Revenue vehemently opposed the writ applicationcontending that the case of the assessee was reopened on the basis of theinformation shared by DDIT (Inv.), Mumbai and after receiving theinformation, the assessing officer made independent enquiries and it wasfound that the assessee company received an amount of Rs.1,23,89,040/-from M/s. Chetan Enterprises, which is non filer of the income taxreturns and its whereabouts also not known. Under the circumstances, itwas submitted that the reasons recorded for reopening are clear andreflected proper application of mind on the part of the assessing officerand the assessing officer himself was satisfied with regard to theinformation and came to the conclusion that the income received fromM/s. Chetan Enterprises and the deficit interest income has escapedincome. Under the circumstances, the action taken by the assessingappearing for the Revenue vehemently opposed the writ applicationcontending that the case of the assessee was reopened on the basis of theinformation shared by DDIT (Inv.), Mumbai and after receiving theinformation, the assessing officer made independent enquiries and it wasfound that the assessee company received an amount of Rs.1,23,89,040/-from M/s. Chetan Enterprises, which is non filer of the income taxreturns and its whereabouts also not known. Under the circumstances, itwas submitted that the reasons recorded for reopening are clear andreflected proper application of mind on the part of the assessing officerand the assessing officer himself was satisfied with regard to theinformation and came to the conclusion that the income received fromM/s. Chetan Enterprises and the deficit interest income has escapedincome. Under the circumstances, the action taken by the assessing officer is just, legal and proper and does not warrant any interference. 12.Mrs. Mauna Bhatt, the learned Sr. Standing Counsel appearing for therevenue submits that, there being no merits in the writ application, thesame deserves to be dismissed. revenue submits that, there being no merits in the writ application, thesame deserves to be dismissed. officer is just, legal and proper and does not warrant any interference. 12.Mrs. Mauna Bhatt, the learned Sr. Standing Counsel appearing for therevenue submits that, there being no merits in the writ application, thesame deserves to be dismissed. revenue submits that, there being no merits in the writ application, thesame deserves to be dismissed. 13.A plain reading of the reasons recorded, reveals that the case of theassessee sought to be reopened mainly on the ground that (i) theassessee company had received Rs.1,23,89,040/- from M/s. ChetanEnterprises and transaction was not genuine (ii) the assessee companyhad received interest amount of Rs.11,17,084/- as per Form 26AS forA.Y. 2012-13, whereas, the interest income of Rs.5,58,542/- had notdisclosed. assessee sought to be reopened mainly on the ground that (i) theassessee company had received Rs.1,23,89,040/- from M/s. ChetanEnterprises and transaction was not genuine (ii) the assessee companyhad received interest amount of Rs.11,17,084/- as per Form 26AS forA.Y. 2012-13, whereas, the interest income of Rs.5,58,542/- had notdisclosed. 14.Considering the submissions advanced by learned counsel for therespective sides and perusing the materials on record, we are of the viewthat while disposing off the preliminary objections filed by the writapplicant against the reasons recorded for reassessment have not beenproperly dealt with by the Assessing Officer. We take the note of thefact that, while submitting the objections, the writ applicant hadspecifically taken a stand that the alleged amount of Rs.1,20,46,250/-received from M/s. Chetan Enterprises on behalf of M/s. HarshEnterprises from whom the writ applicant was to recoverRs.1,26,48,563/- on account of sales made to the said parties in the year2011-12 and the same had been credited to the account of M/s. HarshEnterprises during A.Y. 2012-13 and there was no any independenttransaction with M/s. Chetan Enterprises. respective sides and perusing the materials on record, we are of the viewthat while disposing off the preliminary objections filed by the writapplicant against the reasons recorded for reassessment have not beenproperly dealt with by the Assessing Officer. We take the note of thefact that, while submitting the objections, the writ applicant hadspecifically taken a stand that the alleged amount of Rs.1,20,46,250/-received from M/s. Chetan Enterprises on behalf of M/s. HarshEnterprises from whom the writ applicant was to recoverRs.1,26,48,563/- on account of sales made to the said parties in the year2011-12 and the same had been credited to the account of M/s. HarshEnterprises during A.Y. 2012-13 and there was no any independenttransaction with M/s. Chetan Enterprises. 15.Record indicates that the writ applicant had responded to the summonsissued under Section 131 of the Act, inter alia, stating that no anyindependent transaction being made with M/s. Chetan Enterprises. Itappears from the record that while submitting the objections, the writissued under Section 131 of the Act, inter alia, stating that no anyindependent transaction being made with M/s. Chetan Enterprises. Itappears from the record that while submitting the objections, the writ applicant had submitted copies of the ledger account of M/s. HarshEnterprises in the year 2010-11 and 2011-12, the bank statement of AxisBank Ltd. for the year 2011-12 to show the entries of receipt of moneyto the tune of Rs.1,23,89,040/- as well as the copy of the balance-sheetand audited accounts. Enterprises in the year 2010-11 and 2011-12, the bank statement of AxisBank Ltd. for the year 2011-12 to show the entries of receipt of moneyto the tune of Rs.1,23,89,040/- as well as the copy of the balance-sheetand audited accounts. applicant had submitted copies of the ledger account of M/s. HarshEnterprises in the year 2010-11 and 2011-12, the bank statement of AxisBank Ltd. for the year 2011-12 to show the entries of receipt of moneyto the tune of Rs.1,23,89,040/- as well as the copy of the balance-sheetand audited accounts. Enterprises in the year 2010-11 and 2011-12, the bank statement of AxisBank Ltd. for the year 2011-12 to show the entries of receipt of moneyto the tune of Rs.1,23,89,040/- as well as the copy of the balance-sheetand audited accounts. 16.We have examined para 6.1 of the order disposing off the objections,wherein, no reasons having been assigned so far as the issues raised bythe writ applicant with regard to the alleged transaction is concerned.We are of the view that, the Assessing Officer failed to take note of thevarious objections filed against the reasons recorded. Para 6.1 of theorder of disposing off the objections does not reflect proper applicationof mind to the objections raised by the writ applicant and it could not besaid that the objections having been disposed off by passing a reasonedorder. wherein, no reasons having been assigned so far as the issues raised bythe writ applicant with regard to the alleged transaction is concerned.We are of the view that, the Assessing Officer failed to take note of thevarious objections filed against the reasons recorded. Para 6.1 of theorder of disposing off the objections does not reflect proper applicationof mind to the objections raised by the writ applicant and it could not besaid that the objections having been disposed off by passing a reasonedorder. 17.In view of the judgment of the Apex Court in the case of GKNDivershaft (India) Ltd. Vs. Income tax Officer & Ors. [(2003) 259 ITR19], while disposing off the objections against the notice issued underSection 148 of the Act, it is an obligatory on the part of the AssessingOfficer to deal with the issues raised therein and pass speaking order. Inthe case of GKN Driveshaft (supra), the Supreme Court has laid downthe procedure as to the manner of dealing with the objections raisedagainst the notice under Section 148 of the Act. The Supreme Court hasheld that when a notice under Section 148 of the Act is issued, theproper course of action for the noticee is to file return and if he sodesires, to seek reasons for issuing notice. It was further held that theAO is bound to furnish reasons within a reasonable time and uponreceipt of reasons, the noticee is entitled to file an objection to issuanceof notice and AO is bound to dispose of the same by speaking order.Divershaft (India) Ltd. Vs. Income tax Officer & Ors. [(2003) 259 ITR19], while disposing off the objections against the notice issued underSection 148 of the Act, it is an obligatory on the part of the AssessingOfficer to deal with the issues raised therein and pass speaking order. Inthe case of GKN Driveshaft (supra), the Supreme Court has laid downthe procedure as to the manner of dealing with the objections raisedagainst the notice under Section 148 of the Act. The Supreme Court hasheld that when a notice under Section 148 of the Act is issued, theproper course of action for the noticee is to file return and if he sodesires, to seek reasons for issuing notice. It was further held that theAO is bound to furnish reasons within a reasonable time and uponreceipt of reasons, the noticee is entitled to file an objection to issuanceof notice and AO is bound to dispose of the same by speaking order. 18.In the case on hand, specific objections raised by the writ applicant 18.In the case on hand, specific objections raised by the writ applicant produced on record at Page 37 of the writ application having not beenproperly dealt with by the Assessing Officer. The lapses is in clearviolation of the Apex Court. Thus, it appears that the Assessing Officerhas passed the order disposing of the objections mechanically andwithout application of mind. In other words, not in a meaningfulmanner. We are conscious that, disposing off the objections raised bythe assessee against the reasons recorded before issuance of notice underSection 148 of the Act, though not part of the statutory requirement, asprescribed under the Act, however, same is guided by the directionsissued by the Apex Court. 19.In view of the above, this writ application succeeds in part. The orderdisposing off the objections filed by the assessee, dated 04.10.2019 atAnnexure – H, page-55 to 61 to this writ application is hereby set asideand the matter is remitted to the Assessing Officer. The AssessingOfficer shall take into consideration the objections raised by the assesseeand pass a fresh speaking order in accordance with law.disposing off the objections filed by the assessee, dated 04.10.2019 atAnnexure – H, page-55 to 61 to this writ application is hereby set asideand the matter is remitted to the Assessing Officer. The AssessingOfficer shall take into consideration the objections raised by the assesseeand pass a fresh speaking order in accordance with law. 20.Let this exercise be undertaken within a period of six weeks from thedate of the receipt of this order. We may clarify that we have otherwisenot expressed any opinion on the merits of the case and we shouldotherwise also not do so as we are remitting the matter to the AssessingOfficer.date of the receipt of this order. We may clarify that we have otherwisenot expressed any opinion on the merits of the case and we shouldotherwise also not do so as we are remitting the matter to the AssessingOfficer. 21.In the event, if the order that the Assessing Officer may pass a fresh, isadverse in any manner to the assessee, then, it shall be open for him tochallenge the same before the appropriate forum in accordance with law.However, in the event, if the order is adverse, then at-least a period offour weeks shall be granted to the assessee to take recourse of theremedy available to him in law.adverse in any manner to the assessee, then, it shall be open for him tochallenge the same before the appropriate forum in accordance with law.However, in the event, if the order is adverse, then at-least a period offour weeks shall be granted to the assessee to take recourse of theremedy available to him in law. (J. B. PARDIWALA, J) (ILESH J. VORA,J)